Germany's Merkel suffers state vote setback as coalition talks loom

BERLIN/HANOVER (Reuters) - Germany’s Social Democrats (SPD) defeated Angela Merkel’s conservatives in a vote in the northern state of Lower Saxony on Sunday, a setback for the chancellor as she prepares for tricky coalition talks at the national level this week.

The SPD, which has governed the swing state home to carmaker Volkswagen (VOWG_p.DE) with the Greens for four years, won 37.3 percent, well up from 32.6 percent in the last election there in 2013, according to projections on public broadcaster ARD.

Merkel’s Christian Democrats (CDU) took 33.4 percent of the vote in the rich agricultural state which has around six million eligible voters, down from 36 percent in 2013.

Disgruntled with Merkel’s liberal migrant policy, Germans abandoned her party in droves in September’s national election to hand the conservatives their worst result since 1949.

If confirmed, Sunday’s result would be the poorest showing for the CDU in Lower Saxony in 58 years, further weakening Merkel as she tries to put together an alliance with the pro-business Free Democrats (FDP) and environmentalist Greens.

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Those parties will this week begin discussions about entering a marriage of convenience untested at the federal level that could drag into 2018.

Peter Tauber, the CDU’s secretary general, said all three parties involved in national coalition talks had lost support in Lower Saxony, but dismissed the idea that the state vote would have a big impact on the talks.

“It wouldn’t be wise to think this will weigh us down,” he said.

“We have a clear mandate and we take that very seriously and we are talking about serious and important topics ... that’s why we’re now talking seriously and looking forward.”

The projections showed the environmentalist Greens, currently junior coalition partner to the SPD in Lower Saxony, on 8.9 percent. The liberal Free Democrats (FDP) won 7.4 percent. Both performed considerably worse than in 2013.

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The far-right Alternative for Germany (AfD) cleared the 5-percent threshold to enter parliament with 6.2 percent - albeit far weaker than the 12.6 percent it scored nationally in September.

“JAMAICA” ON THE HORIZON

Merkel’s poor showing in September, along with the SPD’s insistence on going into opposition, left her with no viable option other than a “Jamaica” coalition, so named because the three parties’ colours correspond with the black, yellow and green of Jamaica’s flag.

It means the prospective partners will need to overcome huge differences on issues ranging from immigration to European Union reform, tax and environmental protection.

Katrin Goering-Eckhardt, leader of the Greens in parliament, said forming a coalition would not be easy: “It remains difficult but we can at least get started.”

A deal brokered last weekend between Merkel’s CDU and its conservative Bavarian sister party, the CSU, to cap the number of immigrants is likely to be hard for the Greens to swallow.

Merkel has acknowledged the difficulties ahead but added that “unusual combinations can of course bring the opportunity to find some solutions to things that had seemed unsolvable until now”.

“So now we need to put our noses to the grindstone,” she said on the campaign trail in Lower Saxony on Thursday.

An SPD-Green coalition has ruled the state for four years, but lost its majority when a Greens lawmaker defected to the CDU, triggering a snap election.

Lower Saxony’s incumbent SPD premier Stephan Weil said he would talk to all parties except the AfD about forming a coalition. It was the first time the SPD has been the biggest party in the state since 1998. Turnout was about 63 percent, according to broadcaster ARD - higher than in 2013.

Sunday’s win was the first victory for the SPD under Martin Schulz, who was nominated as its leader in January and suffered three state election defeats earlier this year and then the SPD’s worst national result in the post-war era in September.